Western Union 2011 Annual Report Download - page 31

Risks associated with operations outside the United States and foreign currencies could adversely affect our
business, financial condition and results of operations.
An increasing portion of our revenue is generated in currencies other than the United States dollar. As a result,
we are subject to risks associated with changes in the value of our revenues denominated in foreign currencies.
Our Business Solutions business provides currency conversion and, in certain countries, foreign exchange
hedging services to its customers, further exposing us to foreign currency exchange risk. In order to mitigate
these risks, we enter into derivative contracts. However, these contracts do not eliminate all of the risks related to
fluctuating foreign currency rates.
Our foreign exchange risk is greater, and our foreign exchange risk management is heightened, in our Business
Solutions business. The significant majority of Business Solutions’ revenue is from exchanges of currency at the
spot rate enabling customers to make cross-currency payments. In certain countries, this business also writes
foreign currency forward and option contracts for our customers. The duration of these derivatives contracts is
generally nine months or less. The credit risk associated with our derivative contracts increases when foreign
currency exchange rates move against our customers, possibly impacting their ability to honor their obligations to
deliver currency to us or to maintain appropriate collateral with us. Business Solutions aggregates its foreign
exchange exposures arising from customer contracts, including the derivative contracts described above, and
hedges the resulting net currency risks by entering into offsetting contracts with established financial institution
counterparties. If we are unable to obtain offsetting positions, our business, financial condition and results of
operations could be adversely affected.
A significant portion of our revenue is generated outside of the United States and much of the cash and cash
equivalents from this business are held by our foreign entities. Repatriating these funds to the United States
would, in many cases, result in significant tax obligations because most of these funds have been taxed at foreign
tax rates that are relatively low compared to our combined federal and state tax rates in the United States. If
repatriation of these funds is required or if a change in legislation requires a different tax treatment, our business,
financial condition and results of operations could be adversely impacted. For further discussion regarding the
risk that our future effective tax rates could be adversely impacted by changes in tax laws, both domestically and
internationally, see risk factor “Changes in tax laws and unfavorable resolution of tax contingencies could
adversely affect our tax expense” below.
Money transfers and payments to, from, within, or between countries may be limited or prohibited by law.
At times in the past, we have been required to cease operations in particular countries due to political
uncertainties or government restrictions imposed by foreign governments or the United States. Occasionally
agents have been required by their regulators to cease offering our services, see risk factor “Regulatory initiatives
and changes in laws, regulations and industry practices and standards affecting our agents or subagents could
require changes in our business model and increase our costs of operations, which could adversely affect our
operations, results of operations and financial condition” below. Additionally, economic or political instability
or natural disasters may make money transfers to, from, within, or between particular countries difficult or
impossible, such as when banks are closed, when currency devaluation makes exchange rates difficult to manage
or when natural disasters or civil unrest makes access to agent locations unsafe. These risks could negatively
impact our ability to offer our services, to make payments to or receive payments from international agents or our
subsidiaries or our ability to recoup funds that have been advanced to international agents or are held by our
subsidiaries and could adversely affect our business, financial condition and results of operations. In addition, the
general state of telecommunications and infrastructure in some lesser developed countries, including countries
where we have a large number of transactions, creates operational risks for us and our agents that generally are
not present in our operations in the United States and other more developed countries.
Many of our agents outside the United States are post offices, which are usually owned and operated by
national governments. These governments may decide to change the terms under which they allow post offices to
offer remittances and other financial services. For example, governments may decide to separate financial service
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